The CIT Group priced $1 billion of FFELP-guaranteed student loan-backed notes last week, in a five-tranche deal led by Citigroup Global Markets and Credit Suisse First Boston, its first transaction in the sector.
A source close to the deal noted that the pricing came one basis point wide of the most recent deal from sector veteran Sallie Mae and sets CIT up "very, very well [to issue again] in the student loan sector." Lacking a one-year tranche, the $334 million, three-year A1 class priced at two basis points over three-month Libor, the $210 million, seven-year tranche priced at nine basis points over, the $201 million 10-year tranche priced at 12 basis points over, and the $224 million, 15-year tranche priced at 16 basis points over Libor - all within initial price talk.
Usama Ashraf, vice president of securitization and corporate finance for CIT, said the company plans to issue one, $1 billion term deal per year in the student loan sector, meaning CIT is effectively done for the year. Ashraf added that if volumes ramp up considerably they would offer two deals in a given year.
According to the presale report from Moody's Investors Service, the deal is backed by consolidation loans originated by Education Lending Group, Education Lending has issued five previous student loan deals, two of which priced in 2002, before it was acquired by CIT in February. It was partly Education Lending's experience as servicer in the sector that enabled the deal to price as tight as it did, said the source. "One of the concerns was, where do you buy a deal like this versus one from Sallie Mae?" he said.
Though ELG has been in existence since 2001, it is still somewhat of an unknown, compared to Sallie Mae. "[Education Loan Group] does not have the liquidity Sallie Mae has," commenting on the differences between the two issuers. Those advantages translated into a marginally wider pricing for the ELG transaction than Sallie Mae's most recent offering.
The deal represents a shift into the student loan servicing business for CIT, as its subsidiary, Cleveland-based Education Loan Servicing Corp., for the first time will service 30% of the loans in the deal. Ashraf said CIT intends to bulk up its Education Loan Servicing operations, in order to service Stafford and Plus Loans by the third quarter of 2005, and to apply for an Exceptional Performer rating by the U.S. Department of Education. The rating, if granted, will allow Education Loan Servicing to get a servicer rating by one or all of the major rating agencies.
Another unique aspect of the deal is that its subordinate tranches are rated higher than Education Lending's previous deals because of a higher starting parity and a higher reserve floor than previous deals, according to Moody's analyst Barbara Lambotte. Moody's has given the B tranche a provisional rating of Aa1.'
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